5 Product Lessons from Building a Startup Factory

Last month my partners and I had our semi-annual strategy meeting. It was a chance to plan for the future and reflect on what we’ve accomplished, something we fail to do far too often.

When we set out to build Digital Intent, our goal was to create a factory for startups – a company where founders could come and get the dev, UX and marketing expertise they needed to get to Series A. To help them systematically de-risk their idea, validate the pain, get the MVP built, iterate to product-market fit, and identify scalable channels for acquisition.

During our conversation last month, we realized that of the 25 projects we’ve done, 8 have received funding, around $34 million total. They haven’t figured everything out, and we’re not going with most of them on the journey to do so – they reach a point where going with an internal team makes a lot of sense.

We certainly can do better in every aspect of what we do, and we’re perpetually hard on ourselves. But in a world where conservatively 9 out of 10 companies fail, having 1 out of 3 successfully navigate the riskiest phase of the startup lifecycle is a fantastic outcome in my mind.

I’ve thought a lot about the lessons I’ve learned in that time, and the following are my conclusions. Your mileage will certainly vary, but if you’re hoping to maximize your success getting from zero to funded, I submit the following suggestions for your consideration.

Focus Relentlessly on the Problem

Most startup founders by now are at least somewhat familiar with the principles of the Lean Startup, and the ideas behind customer development.

But too many still treat their idea as their baby, and are willing to do very irrational things to avoid finding out their baby is ugly. They’ll either avoid doing customer development altogether, or they’ll do it as a formality – talking to 10 customers, using the information to justify whatever they were going to do anyway, checking the box and moving on, never talking to customers again.

It takes courage to take seriously the principles of customer development and innovation accounting. It takes courage to do 5 rounds of interviews because you haven’t identified the pain yet. It takes courage to iterate or even abandon a solution you’ve spent months thinking about in favor of something with a better chance of working. It takes courage to let qualitative and quantitative data tell you the truth.

But it’s vastly superior to spending months or years of your life pursuing the wrong idea. It’s considerably cheaper too. Investing a few months of time and resources to figure out if you have something before going heads down and building it is a wise decision far too few people make.

Do. One. Thing.

Don’t build a product that does a dozen things in a mediocre way. Rather build something that does one thing better than anyone else.

The advice is everywhere, but sadly the adherents are few.

It’s fairly common in the beginning – founders initially buy into building the minimum viable product and getting it up to find out what people think of it. But they rarely iterate on the core experience one they’re live.

Instead, they expand the functionality, thinking it will solve their problems and get them to product-market fit. They fall into the trap of thinking their product needs to do 3 or 4 things to be truly useful.

This is rarely true. People use a single aspect of an app’s functionality 90% of the time, regardless of the number of features. If someone isn’t getting utility out of the core experience, they’re not going to use your app because of secondary functionality.

There can be exceptions – sometimes companies have found that a small piece of functionality actually represented a better core experience for people, and did a product pivot to focus on that functionality. But this just means the wrong one thing was prioritized, not that the app is better with multiple things.

During your first release, you should spend 80% of your dev time on the core experience.

During subsequent releases, you should spend 80% of your dev time iterating on that core experience.

Obsess Over Retention

The engine that drives the success of an application is usually the effectiveness of the activation, retention and referral processes. And of these 3, retention is the most important.

Any savvy investor or potential acquirer knows total users doesn’t matter – active users is what matters. Number of paying customers doesn’t matter as much as churn rate, lifetime value and monthly recurring revenue.

Retention-based numbers tell you the truth of your business. If you get tons of app downloads but nobody returns, you haven’t figured it out yet. If you get signups but nobody converts to your paid plan, you haven’t figured it out yet. If they don’t stick around long enough to make your lifetime value to customer acquisition ratios work, you haven’t figured it out yet.

What about referral? Isn’t “going viral” the best way of knowing if you’re on to something?

Not necessarily. First, it’s unlikely you’re going to truly go viral, especially if you’re not a UCG site, social network, viral content company or game with inherent viral mechanics.

Even if that is the case, there’s data to suggest focusing on retention is still preferable to focusing on virality. Plenty of products have had amazing virality but terrible retention, and almost all of them flame out.

Influencing retention means obsessing over the core experience, leveraging data to see if your product changes are having a legitimate impact. It means learning how a cohort analysis works and focusing on it like a laser.

It also means thinking about your product not just as the website (or mobile app). It means keeping in mind every customer touch point. Every email, every push notification, every physical box you send is an opportunity to either improve or hurt your long term retention.

Create a solid retention pattern and you’ve gone a long way towards building something successful.

On-boarding is where you communicate and reinforce the value of the core experience to your customer. Ideally it’s constructed in a way that allows them to experience the core utility of your product immediately.

If you do a poor job here, the customer won’t come back. If you nail it, you’re orders of magnitude more likely to keep them around.

Day 1 retention is a fantastic leading indicator of long-term retention, so improvements you make here often represent the lowest hanging fruit in building a great product, and can help you iterate much more quickly.

It can even help you diagnose potential flaws in the value proposition or the core experience itself – if users don’t fully activate (meaning they engage in your core experience at least once), they either didn’t understand what to do, or you’ve created too much friction.

Start Marketing Day One

With all this talk about the activation-retention-referral engine, it might sound like acquisition doesn’t matter.

Not true.

Other than building a product nobody wants, this is by far the second largest problem. Getting people to care about you is REALLY hard. It’s possible your product is so amazing it literally sells itself. But it’s not likely.

To succeed at acquisition, you have to be relentless. You have to do something to get users every. single. day.

In the beginning, you’re mostly doing things that don’t scale – relying on social outreach, friends and family, and tactical acquisition strategies. At a minimum, you’re trying to drive enough users into your product to test your iterations inside the activation-retention-referral engine.

The more users you get in, the faster you can test and deploy those changes. And ideally you’re communicating with each of these users to get the necessary qualitative information you need to supplement the data and dramatically speed up your learning. No users, no data, no product improvements backed by validated learning.

Most founders simply aren’t willing to do this kind of hustle. Perhaps they’re afraid, perhaps they don’t know how, perhaps they think they just need one big writeup in a big publication and everything will take care of itself.

But there’s no such thing as the Techcrunch article > millions of users > party on a yacht movie montage. There’s no way around doing the work, every day, moving the needle bit by bit.

But you don’t want to only do the non-scalable blunt force stuff. At the same time, you want to be spending some time on strategies for more scalable acquisition – things that might not pay off immediately but will be essential long-term. What Andrew Chen calls the Barbell Strategy.

You want to spend time on your referral loop. You want to spend time looking for ways to leverage organic search traffic (either through content marketing or user generated content). And you want to spend time on tactical paid acquisition to learn what channels and what creative drive the best results, so you can leverage them once you have the budget to do so.

Most of your ideas won’t work – that’s okay. Once you find strategies (both short and long term) that work, you can double down and scale them as much as you can.

At least half your time should be spent on marketing. The startup world is littered with companies who’ve built products that no one used because no one knew about them. It’s not just because they suck – most products kinda suck in the beginning.

Acquisition gives you users, which give you data so you know what parts of your product suck, which gives you what you need to iterate, which gives you a better product.

And all along, you’re learning what positioning, what channels, what tactics can be leveraged successfully.

Perhaps most importantly, you’re building momentum. While smart investors don’t care about total users, there is an emotional lift from seeing new users coming in the door. Use it for fuel, and give them the best experience possible.

There Are No Secrets

Following the guidelines above should increase your odds of success dramatically, but they’re no silver bullet. This is a hard journey, there’s no way around it. The most likely scenario is failure, and failure sucks.

But it’s also worth it, for you and your team. Startups are a fantastic opportunity to learn what you’re made of. To learn how to focus energy. To learn the difference between good things and best things. To learn how to execute strategy, how to sell, how to lead others, how to serve customers. There’s nothing quite like it.

Disclaimer: This is an influencer post. The statements, opinions and data contained in these publications are solely those of the individual authors and not of iamwire and the editor(s).It was originally published here.

Sean Johnson is a partner at Founder Equity, an early stage fund that provides a way for HNW individuals, family offices and funds to get exposure to early stage tech. Sean is also a partner at Digital Intent, helping companies like Groupon, Follett, Sittercity and HarperCollins conceive, build and grow new digital products. He's a professor at Northwestern's Kellogg School of Management and speaks all over the world on how to grow startups.